The return or income generated from a large, privately negotiated transaction involving crypto derivatives, such as options or futures contracts. This yield quantifies the profitability derived from these specific, high-volume trades, often executed over-the-counter (OTC) rather than on a public order book. It reflects the efficiency and strategic advantage gained by institutional participants in managing substantial derivatives positions.
Mechanism
Derivatives block trades are typically arranged between two institutional counterparties or through an RFQ crypto platform, circumventing immediate market price impact. The yield is computed based on the difference between the agreed-upon execution price of the derivative contract and its settlement or closing value, factoring in premiums paid or received, and financing costs. This calculation accounts for the specific terms negotiated, which often differ from public market prices due to the trade’s size.
Methodology
Institutional traders calculate derivatives block trade yield as part of a comprehensive performance attribution and risk management framework. This involves analyzing the impact of such trades on overall portfolio delta, gamma, and theta, using dynamic hedging algorithms to manage exposures. The strategic objective is to optimize capital allocation and enhance returns while minimizing slippage and market footprint, distinguishing block trade profitability from returns on smaller, on-exchange derivative transactions.
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